Former Treasury Secretary Henry Paulson on Housing

CNNMoney's Christine Romans interviews former Treasury Secretary Henry Paulson to get his take on the housing market past and present.

U.S. Housing Market - Not the Only One Feeling the Pain

As reported by Inman News:

"LONDON -- The European housing markets are turning as bitter as vinegar on chips as property sales and prices come tumbling down.

Property values fell to their lowest level in 30 years in September, according to the Royal Institution of Chartered Surveyors. According to another report, home sales fell to 17,000 in June 2008 from 105,000 in June of 2007, and that was before the financial collapse of late summer and fall.

Prices have fallen 15 percent in the last year with some local experts predicting a 50 percent drop before the bottom is reached. As many as 60,000 homeowners are dipping into "negative equity" per month. The U.S. market began to fall in late 2005. The U.K. market stayed strong until last year, but now it is falling fast."

"Doom and gloom" continues to rule the day in this ever growing global arena. The world, in it's expansion, continues to grow smaller and much more intimate.

Housing Prices to Fall 10% More?

As reported from the Wall Street Journal:

Fitch: Housing Prices Have 10% to Go Before Stabilizing

Fitch Ratings put the housing slump in perspective with a note out today looking at when prices will start to stabilize. Its estimates are based on Case-Shiller housing data and assume a rate of inflation of 3%:

"Fitch's analysis shows that the 29% rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has been reversed. With prices returning to early 2004 levels, Fitch believes that most of the additional 10% decline, which will bring prices back to levels seen in 2003, will occur over the next eighteen months. Fitch then expects declines thereafter to moderate."

A loss of an additional 10% over the next 18 months could be considered a positive since housing prices have been dropping sharply and quickly in many markets. The obvious negative, another 10% loss ... wow. When will this end?

Bloomberg - Reaction to Housing Starts / Building Permits Report

Nationwide Housing Prices Continue to Slide - A Brighter Spot in the Northeast Region

- (Marketwire)

Housing Market - A Different View from the Bus but Same Ole Extremes

Can anyone remember a time when you couldn't make a decision fast enough? If you didn't pull the trigger by putting in an "over the asking price" offer within hours of your future dream home being listed on the market, it was going to the next eager home buyer. Perhaps you felt left out if you weren't buying. Gee, what's all the fuss about?

Forget about the financing, that was a guarantee. Too high debt to income ratios? Not enough income? Poor credit? Perfect, we've got just the right product for you. In fact, your interest rate will only be 2.5% and if you really want that $500,000.00 home, go for it, we can make it work. Don't you worry.

Now, the bus tours are back. The only difference, the views. Before, it was jovial discussions with your fellow investors, everyone pondering how much the homes would appreciate in the next two months. "What do you do for a living?" "I'm a real estate investor." "I'm looking to buy a couple of homes today, how about you?" "I'm a real estate investor too and I'm looking to buy two, maybe three homes today! In fact, I quit my job yesterday to do this full time."

Fast forward to 2008. "I love this home, it sold for $500,000.00 in 2005, now it's selling for $225,000.00." The obvious question follows, "You're going to buy it right?" The response, "No, there's probably a better deal around the corner."

These behaviors are predictable and are never going away, neither are these cycles. Oftentimes, these reactions cloud our judgment and lead us to making poor financial decisions. Part of having success is learning these behaviors.

We always seem to learn our lessons of the past until we get drunk on the good times and the promise of a better future, always forgetting that for every action, there is a reaction.

Why do we always choose to live in these worlds of extremes? How come most people fail to realize that this behavior gets them what they've always had .... financially speaking, not much?

The Fed, Global Markets, and The Impact On Real Estate - Should We Expect A Rate Cut Before The FOMC Meeting?

Renewed rally cries for an intermeeting, globally concerted effort, rate cut by the Feds before their two day meeting at the end of the month (October 28th and 29th). Bernake signals a cut may be on the way.



The drumbeat only got louder as the DOW dropped over 500 points in today's trading session. Today's loss pushed the DOW to a 5-year low.

If the Fed does cut rates again, what does that mean for real estate? If you have home equity, car loans, business loans, or any loan tied to the fed funds rate, your money will get cheaper.

In regards to real estate, the cheaper cost of money will spur more real estate investors to begin looking at real estate as a viable investing option again.

In consideration of the numerous monetary policies being implemented, I think one has to wonder if the housing bottom is just around the corner.

Will Real Estate Now Find A Bottom?

In brief, here are a few points summarizing expert opinion regarding the government bailout bill and it's impact on real estate and the housing market:

• Housing markets should begin to find a bottom because the bailout bill will go towards building consumer confidence.


• Interest rates should remain low and relatively speaking stable.


• Foreclosures should begin to subside since it's believed that the government will make a concerted effort to "work out" more favorable loan terms for homeowners on loans in the mortgage portfolios that they have taken over from the bank.

Most experts believe the housing recovery will not happen overnight. The effects of the government bailout package will take time to enact and to infiltrate the market. Short term, it's believed that improved consumer confidence will go a long way towards beginning to stem the bleeding.

The Bailout, Real Estate ... An Uncertain Future?

Today the House agreed to the new bailout bill, 263 Democrats to 171 Republicans. The government tells us that the intent for this bill is to help liquidate a frozen credit market.

The current credit markets are so tight that some business owners are now struggling to obtain financing for simply keeping their businesses afloat let alone business expansion.

Ben Bernanke said "the legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses."

The said result, foreclosures should begin to subside since we should be able to obtain loans again as banks begin lending with new confidence as the government soaks up their bad debt. As loans become more available, it is believed that there is a pent-up demand for housing and Americans will begin to purchase residential real estate again at their current bargain basement prices in many housing markets. As we begin to purchase more homes, the inventory will subside and prices should begin to stabilize before the demand and shrinking inventories ultimately begin to put upward pressure on housing prices.

Time will only tell if these favored results will actually begin to positively affect our housing market. Unfortunately, this bill is laden with nearly $150 Billion in "pork" legislation and does not address many of the issues that ultimately lead us to this point.

We must demand more of our government but can begin by demanding more from ourselves ... if there ever was a time to pay attention!

Fed Holds Steady With Short Term Rates - 2%

As expected, the Fed held steady keeping the central bank's short term interest rates at 2%.

The Fed warned that the inflation outlook remains "highly uncertain" but also indicated that problems in the credit and housing markets, as well as high energy prices, are likely to hurt economic growth over the new few quarters.

The Fed also dropped language that it used in its last statement about downside risks to the economy. In June, the Fed said those risks "appear to have diminished somewhat."

Some economists saw the absence of that phrase in Tuesday's statement as a sign that the central bank is growing more concerned about a deeper-than-expected recession.

-Money.cnn.com

With the housing market turmoil, high oil prices (even though there has been significant downward pressure on pricing per barrel over the past week), and inflation worries, I believe the Fed will not take any drastic measures for the foreseeable future.